Strong steps needed to tame zooming retail profits from farm produce

Last week, travelling in Himachal Pradesh, I stopped at a fruit and vegetable seller’s makeshift shop by the roadside. After making purchases, I casually asked him the price of capsicum. “Rs 40 per kg,” came the prompt reply. The same week, news reports had stated that with Punjab’s farmers unable to get a reasonable price in the markets, many of them were re-ploughing their fields. Earlier, reports had said that irate farmers were dumping capsicum on the roads. They were not getting even Re 1 per kg in the market.

A quick, back-of-the-envelope calculation revealed that the retail trader made a killing with a commission/profit of 3,900 per cent. It only shows that while the consumer has got used to price gouging — a phenomenon that attributes astronomically inflated prices to a sudden surge in demand — they remain oblivious to price extortion at a time when there is no shortage in supply and neither is there a heightened demand for the vegetable.

This is happening at a time when, according to a recent news report, farm labourers in Asia’s largest wholesale fruit and vegetable market — Azadpur mandi, New Delhi — are unable to buy vegetables themselves from the wages they get. For over 40 years, their wages have remained virtually static.

Politics aside, Rahul Gandhi’s conversation with truck drivers clearly brought out the distress wages that truck drivers have to live with. In other words, underpaid farmers, workers and transporters actually form the agricultural supply chain.

As food inflation soars, retail profit margins continue to climb. It, therefore, is quite clear that the spiralling food inflation is the result of greed rather than any supply-demand mismatch. This new phenomenon of price extortion has predominantly taken over the global markets, since the start of the pandemic in 2020.

The supply-demand constraints during lockdowns have been very cleverly used by the industry to indulge in profiteering and pass on the burden to consumers, citing inflation as the reason. Not only with vegetables and food products, a report in the New York Times (May 20, 2023) shows how even car manufacturers have formed a cartel and raised prices. A study shows dealer margins forming 35 to 62 per cent of the hike in car prices between 2019 and 2022.

Another study by international charities GRAIN and IATP have shown that fertiliser companies, too, have extracted their pound of flesh. Profits of nine top fertiliser manufacturers have increased from $14 billion pre-pandemic in 2019 to $28 billion in 2021 and finally to $49 billion in 2022, tripling their profits in three years.

Returning to food products, a study in Britain had earlier shown that farmers get less than 1 per cent of the profits earned by agribusiness companies on five everyday essentials — apples, cheese, beef-burgers, carrots and bread. Such high profits are being extracted in a country where free markets operate and where there is no APMC mandi that we can shift the blame to. That is why after a lot of public pressure, the British government is reportedly working on a plan to cap the retail prices of some of the daily necessities so as to regulate the zooming retail profits.

Those who blame farmers for opposing the contentious farm laws — that they believe would have pulled out farmers from the clutches of arhtiyas and paid them reasonably high prices — must know that even in the US, where corporate agriculture dominates, farm distress has been steadily worsening. With laws being introduced to take care of farm distress in the US, the increasing farmer suicide rate shows how inconveniently farmers are placed in the food supply chain. With corporates having failed to provide an assured price, the rate of farmer suicides exceeds 3.5 times the national average.

Further, to ensure that farmers earn a decent livelihood, the US provides massive subsidy support to its dwindling number of family farms. As per the New Delhi-based Centre for WTO Studies, the annual US domestic support per farmer stood at a whopping Rs 79 lakh in 2020. This is 232 times what an Indian farmer receives as subsidy support (including fertiliser, seed, water, electricity and crop insurance) — not exceeding Rs 35,000 a year.

Isn’t it, therefore, surprising that a country that preaches free markets as the global mantra for agriculture provides huge domestic support to keep its beleaguered farmers on land? Farming engages just 1.5 per cent of the US population. In India, as per the 2019 Situational Assessment Survey for Agricultural Households, the monthly farm income (including from non-farm activities) is hardly Rs 10,218 per family, which means a lowly Rs 1.22 lakh per year. Even if you add the subsidy component, the total income is a meagre amount.

Besides the half-hearted approach to introducing schemes that provide for deficiency payments, there has been no serious attempt to reform the retail trade. Farm gate prices have routinely crashed for vegetable crops such as onion, turmeric, potato, brinjal and tomato, to name a few; a quick analysis shows that if farmers are selling onions or tomatoes at an average price of Rs 2 per kg and the consumers are being made to shell out upwards of Rs 20 per kg, the trader has quietly made an extortionate commission of 900 per cent. Such rapacious margins are being routinely extracted, and the middle class hasn’t even reacted.

In the US, President Joe Biden calls the four largest livestock companies ‘predatory’ for extracting a profit margin of 300 per cent and Britain is planning to cap the retail prices of some of the essential commodities. It is high time India, too, uses strong measures to tame the retail trade.

The time has come to ensure that farmers are paid at least 50 per cent of the end consumer price. At the same time, the maximum retail prices for common vegetables, fruits and cereal products should be fixed.